Nepal Rastra Bank (NRB) has introduced stricter provisions governing the capitalization of interest on loans extended to long-term projects during their moratorium period, aiming to strengthen risk management while providing limited flexibility for project financing.
Through an amendment to its Unified Directives issued on Wednesday, the central bank has allowed banks and financial institutions (BFIs) to capitalize interest accrued on project loans during the moratorium period until the commencement of commercial production and the generation of cash flows.
However, the facility will be available only to long-term projects that have not undergone loan restructuring or rescheduling. If a project’s moratorium period is extended beyond the originally approved terms, the loan will automatically be classified as restructured. In such cases, BFIs will be required to maintain a minimum loan-loss provision of 25 percent against the outstanding exposure.
Previously, banks were not permitted to capitalize interest accumulated during the moratorium period. Instead, accrued interest had to be recorded separately from the principal loan amount.
The revised directive also introduces a special provision for hydropower projects that have completed construction but are unable to operate at full capacity due to delays in the construction of transmission line infrastructure.
Under the new arrangement, BFIs may partially capitalize interest to the extent that it is not covered by the project’s net sales proceeds until the required transmission lines become operational. The measure is expected to provide temporary financial relief to hydropower developers facing infrastructure-related delays beyond their control.
The latest amendment reflects the central bank’s effort to balance financial sector stability with the financing needs of large infrastructure projects, particularly in Nepal’s hydropower sector, where transmission bottlenecks have delayed commercial operations of several completed projects.
